The word for 2020 was COVID. COVID caused a steep drop in equity prices. In fact, a record drop in equity markets. The record drop in prices, was followed by another record, the best ever short term 50day rally. The COVID period gave us the worst economic crisis for 80 years.
If the COVID vaccines prove to be the answer to the COVID pandemic, 2021 may well be a good year for financial markets. Cautious optimism is the outlook from most fund managers. Much will be determined by the confidence of consumers. Will the vaccine help people to feel happy to travel again?
Governments round the world are committed to financial stimulus and have signalled that interest rates will remain low.
Low interest rates will be good for dividend paying stocks. 2020 saw dividends stocks, particularly banks, fall out of favour. Fully franked dividends tend to offer a better return than cash rates. Dividend paying stocks had a bad 2020 but are likely to come back in favour in 2021.
Iron ore prices have been very hot during 2020. However, predictions are suggesting that iron prices will moderate during 2021.
Volatility is very likely to continue in 2021 so be confident with your long-term strategy. The election of Joe Biden has reduced some of the volatility. I think the world has welcomed the prospect of some normality in US politics and its place in the world.
In general terms, I am looking forward to a good year for markets. Health care stocks should do well, so too technology and emerging markets, particularly Asia.
Australian Shares
- RIO has had a good year, up 23% and BHP up 18%
- Galaxy Resources up 49%
- Virgin Money (VUK) down 49%.
International Shares
- Hold steady but consider increasing exposure to Emerging Markets.
Property
- Domestic real estate is looking strong with a recent recovery. I will be interested to see if the current market strength continues.
- Commercial property should recover as the world gets back to work.
Interest Rates
- My view is, that we should still plan for increases especially when taking on more debt.
Generally, keep investing in quality good yielding shares. Consider increasing your portfolios allocation to Emerging Markets and property.
Consider reducing exposure to mining stocks and increasing exposure to dividend yielding stocks and health care.
Consider investing in post COVID stocks like Qantas, Sydney Airports and Transurban.
I look forward to our next meeting and as always please feel free to contact me any time.
Yours Sincerely,
Steve Burge